London’s post-election commercial property outlook

The Show Goes On

There were sighs of relief across the London commercial property market on Friday morning as the threat of a hung parliament evaporated. With a full parliamentary majority and a mandate to continue his business-friendly policies, David Cameron and the Conservative Party could certainly call on the support of the industry.

So how might this unexpected election result play out for the sector? Here are three potential effects on London’s commercial real estate industry:

1          An acceleration in overseas investment in London

The magnetism of the central London commercial property market for foreign buyers increased sharply in the first quarter of 2015. Investment rose to £3.1 billion, a 28 per cent increase compared to the same period in 2014, 60 per cent of which was from non-domestic investors.

Whatever hesitancy there may have been ahead of the election has now surely disappeared, meaning a further boost to investment volumes is to be expected.

The wealth of positive data on the UK economy – falling unemployment, low inflation and low interest rates – should help London and the UK in general to enjoy a continued rise in inward investment in commercial property.

2          The Conservative government acting on its Manifesto and Budget plans

In the final Budget of the coalition government, issues relating to commercial property included a proposed ‘radical’ review of business rates (and giving cities more power to collect and spend the revenue) and selling off portions of the government’s central London property stock.

Maintaining London’s position as the powerhouse of the UK economy is certainly among the Conservatives’ plans, so there are few fears of any measures that would jeopardise the city’s position.

Indeed, most commercial property professionals view the Conservative victory as a highly positive outcome for the capital. ‘This is a very bullish outcome for London real estate markets at all price levels,’ said one senior executive.

3          Concerns over an EU referendum

While some in the commercial real estate sector have already discounted the potential impact of the promised referendum on Britain’s EU membership, assuming it to be a virtual certainty that David Cameron will keep the country in Europe, others are less confident.

They point to the strong Eurosceptic wing of the Tory party, which may use the government’s slim majority to exert political pressure and create uncertainty in the coming two years, ahead of the expected vote in 2017. Without their support, the government may struggle to implement its policies, potentially creating inflation and hastening an interest rate rise.

International investors and occupiers may defer decisions on London real estate in the run-up to a vote, causing a market slowdown. Existing occupiers, such as large international banks, whose business models depend on Britain remaining in the EU, may consider relocating.

The shock of the May 2015 general election result would be nothing compared to the economic earthquake of Britain leaving the European Union. London’s commercial property sector may need to make its voice heard in the looming debate, rather than assume that common sense will prevail.